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Fewer homeowners are now ‘underwater’

Mitchell Hartman Mar 17, 2015
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Fewer homeowners are now ‘underwater’

Mitchell Hartman Mar 17, 2015
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From 2009 to 2011 — after home prices had crashed in the wake of the housing crisis  more than 25 percent of American homeowners were underwater. CoreLogic now reports that as of the end of 2014, 10.7 percent of homeowners were underwater: A situation also known as negative-equity, in which a homeowner owes more on their mortgage(s) than the house is currently worth.

Percentage of U.S. homeowners who are 'underwater' and have negative-equity in their property, i.e., they owe more on their mortgage (or multiple mortgages) than the mortgaged property is currently worth.

Percentage of U.S. homeowners who are ‘underwater’ and have negative-equity in their property, i.e., they owe more on their mortgage (or multiple mortgages) than the mortgaged property is currently worth.  

CoreLogic senior economist Frank Nothaft says some of the decline in negative equity in recent years is due to underwater homeowners losing their homes to foreclosure, or eliminating their mortgage through a short-sale. But he says most of the improvement has resulted from the gradual rise in home prices. Nothaft anticipates that the improvement will continue, with home prices rising 5 percent in 2015.  

CoreLogic reports that some states still have very high rates of negative equity: Nevada (24 percent), Florida (23 percent), Arizona (19 percent), Mississippi (17 percent), Illinois (16 percent), Rhode Island (16 percent), and Ohio (15 percent). Those rates have also fallen; as many as 50 to 75 percent of homeowners were underwater in some of these states during 2009-11.

The current nationwide negative-equity rate of 10.7 percent is still extremely high by historic standards, says Nothaft. “We still have about 5 million homeowners underwater, but continuing to be current on their mortgages and making their monthly payments,” he says.

Such a homeowner may not face foreclosure or bankruptcy, but they’ll find it difficult to sell  to upsize or downsize as their lifestyle or family-composition changes — or to relocate to a different region for better job opportunities or retirement.

“I think of it as freezing people in place,” says Kenneth Johnson, senior demographer at the University of New Hampshire’s Carsey School of Public Policy. Domestic migration fell dramatically during and after the recession, he says, with people’s mobility limited by “houses they couldn’t sell and fear of changing jobs.”

Now, domestic migration is picking up again. Johnson says a direct causal link to the improving job and housing market is hard to prove, but he believes that’s part of what’s driving the change.

“One of those places where we’re seeing growth pick up is in amenity and retirement areas, places with lots of golf courses and things like that,” says Johnson. Florida, for instance, is again gaining population — likely driven in part by retirees selling their homes in northern climes.

Also, employers are now competing more aggressively for qualified workers, says economist John Canally at LPL Financial. So a potential employee who is locked in by negative equity might now be able to move, care of their new employer. “Companies today might be a little more willing to help someone who’s relocating,” says Canally, “to buy that person’s home in Miami and help them relocate in Dallas, where four or five years ago they were not.”

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